Hartford Business Journal

14 HARTFORDBUSINESS.COM | JULY 12, 2021 By Matt Pilon mpilon@hartfordbusiness.com S tate lawmakers have rewarded bioscience companies with a boost in tax credits after what may be the broader industry's most significant year in modern history. Connecticut's research and development tax credit program, which incentivizes R&D investments in the state, will increase in value over the coming two years, following a last-minute tweak lawmakers slipped into their expansive "budget implementer" bill last month. The change, now signed into law by Gov. Ned Lamont, will increase on a relatively swift schedule the amount of state tax liability companies are allowed to offset with their R&D credits in a given year. That percentage would climb from 50% to 70% over the next two income years (2022 and 2023). Bioscience advocates are enthused. They say the R&D credit helps startups weather a long product or drug development process that can take 12 years or longer to reach profits, if any come at all. They also say a more competitive credit could help attract new investments to the state, and help keep existing companies from moving. Nicole Wagner, CEO of Farmington-based LambdaVision, which is developing an artificial retina, said her company has made use of the R&D credit in recent years. "For small businesses, like LambdaVision, these credits help to support continued R&D, which is critical for the development and commercialization of new technologies," Wagner said. William Claffey, a partner at Glastonbury-based accounting firm Fiondella, Milone & LaSaracina, which counts biotech startups among its clients, testified to lawmakers in March that the R&D credit takes aim at an industry that raises and spends a lot of money. "... we see a lot of their [profit and loss statements], we see a lot of their trial balances and balance sheets, and one thing I think is true is that biotechnology companies are spenders, they tend not to be holders," Claffey said. "It's the nature of the industry — move forward or fall behind." Paul Pescatello, executive director of the Connecticut Business & Industry Association's Connecticut Bioscience Growth Council, said the tax credit tweak was a positive development for his constituents, and he particularly appreciates the timing. A number of bioscience and pharmaceutical companies with Connecticut operations — with Pfizer ultimately emerging as the most prominent — played roles in the scramble to develop COVID-19 vaccines that were ultimately approved for use in human patients less than a year after the novel coronavirus reached the West Coast. "Seeing what this R&D engine can do is amazing," Pescatello said. "If there was ever a year to kind of take stock of this industry, this is it." While bioscience firms are a key beneficiary among the estimated 160-plus companies that benefit from the R&D tax credit, aerospace companies and others are also credit generators. The more favorable terms for R&D companies will cost the state an estimated $23.7 million in the next few years, a relatively modest sum compared to Connecticut's $46.3 billion biennial budget, but Pescatello said it will make a difference — if the change holds. Law today, gone tomorrow Since 2015, state lawmakers have grappled with some major deficits, and as they've picked apart the state's expenditures seeking to close the gaps, the R&D credit has often found itself in the crosshairs. From 2002 through 2014, companies could offset 70% of their tax liabilities with R&D credits, but that changed in 2015, when lawmakers lowered the cap to 50%, freeing up more than $76 million in tax revenue. Later that same year in a special session, legislators reversed course, agreeing to a phased increase of the cap back up to 70% over the next four years. It never quite got there, reaching 65% before the 2019 legislature canceled the final jump to 70% and instead knocked the cap back down to 50%, generating an estimated $56 million in state revenue gains for the biennium that concluded last month. Pescatello, a registered lobbyist, has ridden that roller coaster at the Capitol over that period, and he says it sends an uncertain message to companies about investing here and makes it more difficult to project the cost of doing business. "It's definitely made it more difficult to recruit companies here and to capture the expansions," he said. Pescatello is quick to note that Connecticut's R&D tax credit structure is mostly competitive with other states. "The most problematic thing about [the credit] is how much it's been in play," he said. Connecticut's R&D incentive, he said, is on par with those Nicole Wagner, CEO of Farmington-based LambdaVision, which is developing an artificial retina, said her company has made use of the state's R&D tax credit in recent years. PHOTO | CONTRIBUTED Research Boost CT's yo-yoing R&D tax credit, a key incentive for bioscience sector, is back on the upswing

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